Certified Government Financial Manager (CGFM) Practice Exam 2025 - Free CGFM Practice Questions and Study Guide

A zero coupon bond is a type of bond that does not pay periodic interest payments, known as coupons, during the life of the bond. Instead, it is issued at a discount to its face value and matures at par value. The difference between the purchase price and the maturity value represents the investor's return. Because these bonds do not provide any cash flows until maturity, they are especially appealing to investors who are willing to forgo periodic interest payments in exchange for a lump sum at maturity.

In contrast, other types of bonds, such as convertible bonds and savings bonds, typically offer periodic interest payments or different terms that include interest accrual. A discount bond does involve buying at a price lower than its face value, but it may still provide interest payments. Therefore, the unique characteristic of zero coupon bonds is their absence of payments until maturity, making them distinct among bond options.